You may have been hearing a lot of chatter about I bonds recently. Series I savings bonds are a type of U.S. savings bonds that are designed to protect the value of your cash from inflation. With inflation soaring to its highest level in over four decades, I bonds have become increasingly popular as a safe investment, issued by the U.S. Treasury, providing returns that exceed CDs, money markets, and high yield savings accounts. Below is a primer on the basics of I Bonds should you consider adding them to your overall portfolio.
I bonds can be purchased electronically for up to a maximum of $10,000 annually at https://www.treasurydirect.gov/ You must go onto this government website to set up an online account. Unfortunately, this is not something that we can do on your behalf. In addition, up to $5,000 of paper I bonds can be purchased directly with proceeds that you receive from your tax return, increasing the total annual purchase amount to $15,000.
I bond interest is calculated based on a fixed interest rate, which is set at purchase and lasts for 30 years, and an inflation-adjusted rate which changes every six months, usually May 1 and November 1. The current rate through April 30, 2022, is 0.00% fixed rate and the inflation rate of 7.12% for a total rate of return of 7.12%.
Interest on I bonds is calculated monthly. However, you do not get access to the interest until you cash out the bonds. I bonds must be held for 5 years to receive the full interest payment. They are required to be held for at least one year. Should you cash out after one year but prior to 5 years, you will forfeit 3 months of interest. There is no interest penalty for cashing in the bonds after 5 years.
I bonds are exempt from state and local income tax and are completely tax-free if used to pay higher-education expenses.
We believe that a goals-based globally diversified investment portfolio that incorporates various asset classes is the best way to capture return and manage risk. I bonds can be used to complement your overall portfolio and hedge against inflationary pressures.
Let us know if you have any questions or wish to put this topic on our next meeting agenda.